India-China FTA talks soon

Announcement likely during the visit of prime minister in January.

India is likely to soon initiate formal negotiations for a free trade agreement (FTA) with China, the third largest destination for Indian goods and the biggest source of imports. A task force comprising officials from both countries recently submitted its report saying the FTA was feasible.

Sources said an announcement could be made during the visit of Prime Minister Manmohan Singh to China in January next year. However, due to the ongoing political uncertainty in India, the negotiations could start much later.

China has been India's third largest export destination and the biggest source of imports since 2004-05.

India has a fully operational FTA with Sri Lanka and a partially operational agreement, covering 82 goods, with Thailand. It is also negotiating FTAs with the 10-member Asean bloc, South Korea, Japan and the European Union (EU).

According to analysts, the grant of market economy status to China could become a significant issue during the negotiations. In bilateral negotiations, there are lot of trade-offs.

"India may try to negotiate the border issue in lieu of giving China a market economy status," said a source in the know of the development.

As many as 76 countries have recognised China as a market economy, but its top trade partners, like the USA, the EU and Japan, which together account for 48 per cent of its exports, are yet to take such a step.

According to its commitments to the World Trade Organisation (WTO), China has to initiate reforms to become a market economy by 2015, giving its companies a level-playing field with industries in other countries.

Currently, due to a slew of subsidies, tax benefits and artificially undervalued Yuan, Chinese products enjoy cost advantage in the international market. Analysts said after 2015, India would lose some negotiating powers as China might get a market economy status in the WTO by then.

"If trade negotiations are launched in 2008, it will take 2-3 years for conclusion. Even after this, there will be a time period for operationalising the various tariff cuts. These things should be kept in mind while negotiating the FTA," said the source.

However, the Indian industry is not in favour of the FTA under the current circumstances.